What are the rules for buying property in India?

Posted on April 21, 2010

NRIs have continued to buy and sell houses in India despite the global economic crisis in the recent years. In fact, NRIs have used the gloomy global scenario to their advantage to secure bargain properties in India.

As India Inc continues its success story, and while the country maintains its economic growth prospects, more Indians living abroad are exploring opportunities to invest in India.

Before investing in the real estate in India, it is important to know the rules and regulations governing property investment in India by NRIs or people of Indian origin.

Which law governs NRIs

India’s Foreign Exchange Management Act, 2000 (FEMA, previously known as FERA – Foreign Exchange Regulations Act) provides rules for investment in properties by non-residents. This includes non-resident Indians, persons of Indian origin and other foreign nationals to hold, acquire or sell immovable property in India. The rules apply to divestment as well as investement. Keeping in mind their Indian origin, non-resident Indians (NRIs) and persons of Indian origin (PIOs) have special privileges under FEMA.

Who is an NRI

It is important to understand the difference between an NRI and a PIO. An NRI or non-resident Indian is a citizen of India who is currently living outside India.

A Person of Indian origin (PIO) on the other hand, is someone who is not necessarily a citizen of India but someone who has held an Indian passport at some stage in the past.

A PIO is also someone who was (or whose parents or grandparents were) a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955.

This provision does not apply to the citizens of Pakistan, Bangladesh Sri Lanka, Afghanistan, China or Iran.

What type of property can I buy in India?

The law gives general permission to NRIs and PIOs to buy immovable property in India. This permission is available only for buying residential or commercial property. It does not apply to buying or selling of agricultural land, plantation property or a farmhouse in India. Such properties can be bought or sold with a specific approval of the Reserve Bank of India (RBI).

A foreign national resident in India who is a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan would require RBI’s approval before investing.

Can I take the proceeds out of India?

Yes, you can, provided you use the right mode of remittance. An NRI or PIO can remit the proceeds using normal banking channels, or through funds held in a non-resident external account (NRE account)/foreign currency non-resident (B) account (FCNR(B) account)/non-resident ordinary rupee account (NRO account) maintained in India.

You cannot make a payment using traveller’s cheques or foreign currency notes. Also, you cannot make payment outside India.

If the original investment amount has been received from inward remittance or debit to an NRE/FCNR(B)/NRO account for buying a house or for loan repayment, then the principal amount can be repatriated outside India.

If an NRI or PIO buys properties using foreign exchange, then he can repatriate sales proceeds of only two such properties when he sells them. The NRI will need to credit the additional capital gains to the NRO account and then repatriate up to US$1 million in any one financial year, after any due taxes have been paid.

Citizens of Pakistan, Bangladesh, Sri Lanka, China, Afghanistan and Iran have to seek specific approval from the RBI for repatriation of sale proceeds of immovable property.

Who can I sell the property to?

An NRI or PIO can sell property in India to a person resident in India or to an NRI or PIO. Other types of sellers need an RBI approval.

A PIO or NRI can sell agricultural land, plantation property or farmhouse to a citizen of India without RBI approval. However, foreign nationals of non-Indian origin living outside India need RBI approval to sell agricultural property in the country.

(Satyajit Banerjee is a Calcutta-based accountant specialising in NRI accounting. This article is for information only. Please consult an accountant for professional advice.)